US oil
A second wave of infections could undermine OPEC+ efforts to maintain a floor below oil prices. Image Credit: Reuters

New York: Oil held gains after jumping the most in three weeks on Monday on increasing signs OPEC+ will delay a planned easing of output cuts.

Futures in New York traded near $37 a barrel after rising 2.9 per cent in the previous session. Energy Minister Alexander Novak met with Russian producers on Monday to discuss delaying an easing of production cuts by three months.

OPEC+ has been dropping hints for weeks that its plan to add almost 2 million barrels a day of supply from January is being reconsidered as demand falters.

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A second wave fuelled drop

Soaring virus cases in Europe and the US as well as rising output from Libya pushed crude down as much as 6 per cent early on Monday. The pandemic's second wave could see global oil demand drop to 88-89 million barrels a day, said Trafigura Group Chairman Jeremy Weir. That's more than 10 per cent lower than in 2019, based on data from the International Energy Agency.

The rest of the week promises to be as turbulent as the start with Americans heading to the polls on Tuesday for an election that could reshape US policy on everything from fiscal stimulus to Iran and fracking. China, meanwhile, remains the bright spot for global demand, with authorities raising the quota for use of overseas oil by non-state entities next year by more than 20 per cent.

Soothing concerns

"There will have to be action from suppliers if the prices are to stabilize, and Russia's comments are pre-empting that," said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific. "Demand sits on top of all other concerns when it comes to oil prices," so the big turnaround on Monday could be temporary in what's clearly a downtrend, he said.

The rise in the Chinese import quota, which is equivalent to about 823,000 barrels a day, is largely due to refining capacity expansions by Zhejiang Petrochemical and Shenghong Petrochemical Group. Chinese oil buying has picked up in recent weeks with traders hoarding cargoes of everything from Russian to Angolan crude in preparation for the new quota.

Some holdouts

Even as OPEC and its allies look likely to delay adding more output, some members - including Iraq and Nigeria - are seemingly undermining the group's efforts to shore up oil markets. Production from the Organization of Petroleum Exporting Countries jumped by 470,000 barrels a day in October to 24.74 million a day, according to a Bloomberg survey.

The futures curve is showing there's rising concern over a potential supply glut. Brent's six-month timespread was $2.50 a barrel in contango - where prompt prices are cheaper than later-dated ones - from $1.88 a weak earlier.